Abcam PLC (ABCM) 2021 Q4 法說會逐字稿

Ladies and gentlemen, welcome to the Abcam full year results conference call for the 12- and 18-month period ended 31st of December 2021. (Operator Instructions) I must inform you this call is being recorded today.

I would now like to hand over to James Staveley, Vice President of Investor Relations at Abcam. James, please go ahead.

Thank you, operator, and welcome, everyone, to Abcam's earnings call for the 12- and 18-month period ended 31 December 2021. Today's call is hosted by Alan Hirzel, our CEO; and Michael Baldock, our CFO.

Before I hand over to Alan and Michael, let me briefly cover our safe harbor statement on Slide 2. Some of the comments made during this conference call may be considered forward-looking statements, including beliefs and expectations about the company's future performance. These forward-looking statements are subject to risks and uncertainties that are based on currently available data. The company assumes no obligation to update them.

Actual results are subject to future events and uncertainties, which can materially impact the company's actual performance. Please look at the company's recent regulatory filings for a more complete picture of our risks and other factors.

During the call, non-IFRS adjusted financial measures may be used to provide information pertinent to ongoing business performance. Tables reconciling these measures to the most comparable IFRS measures are available in the company's press release issued earlier today.

Finally, if you haven't already received them, you can download a copy of the slides used in today's presentation at the company's website at corporate.abcam.com/investors/reports-presentations.

And now I'd like to turn the call over to Alan. Alan, go ahead.

Thank you, James, and good morning and good afternoon, everyone. I'm going to just start with a little bit of an overview on where I think we are in our strategy implementation over the kind of 5-year plan that we laid out in 2019. And then, of course, Michael will spend a lot more time digging into some of the more recent financial performance, and we'll save time at the end for questions.

If I could turn to Page 4, please. As I said, in 2019, we set out to invest in Abcam to make us more innovative, to accelerate our growth in what we think is a very attractive market opportunity in life science reagents and tools. And right now, we're, in terms of this financial performance period, 2 years into that 5-year plan. And we're feeling really quite good about progress, particularly considering the added complexities of managing implementation of this strategy during what's now been 2 years of a pandemic.

And our objectives really are to make sure that as we're installing new capabilities and new facilities, new product lines, new customers, relationships that we're refining along the way and that we're starting to drive growth and performance out of these investments. And I'm pleased to say that, as we'll talk through our plans, where we are today, we're almost completely done with the major installations and investments in the product portfolio and innovations in our manufacturing and facilities, and we're really starting to pivot more to finishing up the final stages of our digital and IT infrastructure as well as putting some growth capital into our expanding kits and assays line, which I'll come back to in a bit.

And we're doing these things really to drive 2 outcomes: to make sure that we're influencing life science discovery and impact and that we're building a long-term durable enterprise. And on both of these in the period 2021, which is a brief snapshot in time of the history of the company, we feel we've made tremendous progress, either measured by the scale of the publications that we're now influencing, Abcam products were cited in over 70,000 research publications in just 1 year. To put that in context, there are companies that we would compete with where that might be the amount that they would do in a lifetime of their business. We continue to build on our #1 global market share in antibodies, but building beyond that, I'll come back to that in a moment.

And importantly, starting to make this transition from not just influencing discovery, but influencing how those discoveries get translated into clinic, and we now have almost 1,000 Abcam antibody clones that are commercializing diagnostic or proteomic platforms, which are influencing those downstream applications. And there are thousands more under evaluation for those types of application.

And in terms of building a durable enterprise, what you'll see in our numbers today is a pretty significant transition in the shape of the revenues. We think those revenues are higher quality, driven by more proprietary content, better customer engagement with more sophisticated customers who are certainly giving us much stronger feedback. And then building a diverse and engaging employee relationship and engagement with our team is helping us drive the kind of sustainability measures that are important to talent, but also to an overall ESG agenda, where we're pleased to say that both MSCI and Sustainalytics have us rated very highly.

If I could turn to Page 5. All of this is building to the 2024 vision that we outlined back in that Investor Day in November 2019. And it was more than the 6 goals that you are reminded of here on the top of this page. It was to drive to outcomes and those actions that we've just completed. We believe it put us on course to achieve the 8 outcomes that we laid out and really have gone unchanged since the 2019 period, such that data is a competitive advantage for the business, in-house product is now the majority of what we do and driving the majority of our growth. We are the most recommended and cited brand in antibodies, then building that out into other areas of biological research. And we are absolutely reinvesting the cash back in the business to drive and sustain double-digit revenue growth.

Our customers are getting a very high touch experience that is -- when we look for the feedback from them, what's differentiating Abcam to help gain share, it's personalized. We're working to digitize that, and we'll be on the way to doing that through 2024. Our team -- through last year, 90% of our team were equity owners in the business. As of today, it's 100% of our business now. Our shareholders in the company are providing a different mindset, and they're incentivized to drive towards our long-term goals.

We are increasingly recognized for how we're managing and leading an enterprise, whether that's through Glassdoor ratings or ESG ratings or from our customers directly, and we feel we're well on track to deliver our 2024 goals. So this has gone beyond the hopes that we had in 2019 that we -- when we wrote these statements about what we'd like 2024 to look like to being on track to deliver those things.

If you turn to Page 6, I thought I would share with you some of the changes that we've had in the shape of the revenues and profile of the company. And over a 10-year period that I've been involved in the company, we've seen a dramatic change in product towards a broader range, and what you see in each of these is the revenue growth from 2012 to 2021. Of course, we're still growing our primary antibody business, but we've substantially added to the breadth of the portfolio, and in particular, have added large growth opportunities in singleplex/multiplex immunoassays, in sample preparation, proteins and cell engineering more recently.

The source of the product is probably the biggest strategic change in the company ever, is to move from a largely third-party OEM supply model of products and innovation to now the majority of Abcam's revenues and growth coming from our own in-house products, just over 60% of our revenue in this last reporting period.

Geographically, we broadened beyond our heritage and roots in the U.K. and then in the U.S. to China and Southeast Asia. That's added considerable growth and breadth to the company. And finally, on the customer mix, and Michael will say a little bit more about this later, we've gone from 2012, not actually being able to measure exactly where our customers were and not having that data to hand, but our hunch was that it was a majority small-volume academic buyer to now a much more diversified portfolio of customers and in particular, well over 25% of our business coming from biopharma customers. So a pretty substantial change in strategy is now starting to show a pretty substantial change and shift in quality of the revenues that we're generating from the business in the ways that we had hoped.

And then Page 7, if I just dive into that a little bit deeper, in one particular area, for example, where we're trying to influence the outcomes of not just discovery, but the pathway from discovery to clinic. If you look at our impact on immuno-oncology research, what we've been doing is to not only innovate in primary antibodies and bring products to market there, but to look at a whole range of related products, such that we've increased our portfolio from about 850 products in that area in 2016 to now over 4,600, which is, on average, about a 6x increase across the portfolio for immune checkpoint targets, immune response targets, tumor response targets that are critical to immuno-oncology research. And importantly, really making sure that those research tools are made available to partners who are trying to make that journey from preclinical to clinical, such that we now have 150 immuno-oncology-related primary antibodies in clinical applications where they can be having an impact on patient lives.

So very proud of those transitions. It's an important part of strategy as we think about originally our focus in 2013 to 2015 would have been much more about that individual discovery being accelerated in this period from 2019 to 2024. We're focusing a lot more on making sure those discoveries are accelerated and that their impact downstream is made easier and faster.

Page 8. Whilst we're making these strategic moves, we're continuing to do the tactical short-term activities that are required to build our company. And over the last 6 months, some of those practical things have been further improvements in product development throughput, particularly in our newer product areas like cell engineering and proteins where our productivity is up by 5x to 10x in the -- versus where we started in terms of new product development molecules bringing -- being brought to the catalog per month.

Our Oracle implementation continues at pace through the last 6 months of last year. We were able to implement our manufacturing ERP tools in 4 of our sites. And as I said, that work continues, and we expect that to be wrapped up this year.

We expanded facilities in Eugene, Oregon, Adelaide, Australia and opened up a new facility in Singapore in that 6-month period. Our employee investment plan that I mentioned earlier, AbShare, vested and we launched a new plan for all employees that now aligns everyone to the 2024 goals that we laid out. And finally, we acquired BioVision and started the integration of that business into our company in November and December. That work is ongoing, but it's an important long-term supply of products we know very well and are helping the expanding applications of cellular analysis and activity analysis in proteomics and beyond. So really important period of business building.

And if I just turn to Page 9 and wrap up my section, we remain very confident that 2022, as we go into this calendar year, is marking the new phase of our 5-year plan. We're starting to complete the installation phase of strategy and move much more of our company's resources and time on refinement and driving growth and productivity out of those investments. And with the quality team that we've had worldwide and the culture that we've built in the business, I'm certainly confident that we're pulling together in the same direction. And I want to just call out to them now how thankful we all are, the Board, our shareholders and myself and Michael for how they've worked through an extraordinary period of a challenge with COVID and other things going on.

We're certainly achieving the kind of growth that we aspire to across all of our product categories and geographies. Certainly, the investments we're making are enabling us not just to grow now, but will help sustain the business to 2024 and beyond. And as Michael described, we're starting to moderate the pace of investment and focus much more on the remaining fine -- few things that we have to install and more of the activity on improving what we've already done.

So I hope you'll agree with me that this is a great stage to be in. It's everything that we'd hoped for the company. Certainly, a very positive outlook for the company is what Michael and I have, and looking forward to your questions later. But Michael, turn over to you now.

Great. Thank you, Alan. Good morning and good afternoon, everyone. As you know, following our year-end change, our statutory results periods are for the both the 18 months for the U.K. and the 12 months to December 31, 2021, for the U.S. My highlights will focus largely on the 12-month period as it's the most helpful to understand the underlying performance of the business, and we provided a comparative 12-month period ending December 31, December 2020.

If you turn to Slide 11, please. We'll talk a bit about revenues. So revenue in calendar 2021 increased 22% on a constant currency basis compared to calendar 2020 or 17% reported after a 5% foreign exchange headwind due to the relative strength of sterling. Revenue growth was driven by continued recovery in our customer activity with strong growth in our own products and the annualized effect last year of the months most impacted by the pandemic.

We completed the acquisition of BioVision, as Alan just mentioned, on October 26 of last year. The BioVision business last year contributed GBP 2.6 million of revenue or 1% of incremental sales in the year for those last 2 months. I'll give you some additional details later, but we're really pleased with having been able to acquire BioVision and the results we're seeing from it so far.

As you can see at the chart on the right, our revenue growth continues to be driven by demand for our own in-house products. Total sales of our in-house product catalogs, including BioVision, increased by over 40% on a constant currency basis in the year and by 38% if you include our custom products and licensing lines, which grew mid-teens. Overall, in-house sales now represent over 60% of our total sales, up from 54% last year. This trend of higher in-house revenue growth together with higher volumes, drove a more than 200 basis point improvement in our gross margin to over 72%, and it was about 73% in the last 6 months of the year. We expect that margin trend to continue as the proportion of revenue generated from our own in-house products continues to grow.

And as expected, we've now started to see operating margin expansion in the business as we passed the heaviest investment phase of our growth strategy. As you will have seen in the release earlier today, during the year, we took the decision to adjust noncash share-based payments out of adjusted operating profit to align us with our closest peers, and so we presented these results on both the old and new basis to make the comparison clear.

On a like-for-like basis, we delivered 130 basis point improvement year-on-year to 15.1%, but this is equivalent to just over 19% when you add back the share-based payments. We've also split out a half-on-half trajectory to show the improvement in the second half, which saw more than 300 basis point improvement on a like-for-like basis to 16.5% or just over 20% after adding back share-based payments. We expect further margin progression from here as we continue to drive top line growth, slow the rate of investment and leverage the investments in the business to date.

Abcam also continues to be very cash generative with around GBP 63 million of cash generated from operations, which continues to provide the capital to self-fund our organic investments.

Finally, as you recall, we completed a secondary listing on NASDAQ in October 2020. We've been very pleased with the response to the listing with the number of ADSs more than doubling. They now represent a little over 10% of our share capital and around 25% of our liquidity.

So if you now please turn to Slide 12. This slide shows the detail of our second half performance in the context of the last 2 years. As you can see, we delivered strong growth sequentially in the second half of 2021 with revenue up 17% on a constant exchange rate basis on the prior year period to GBP 165 million. And again, this was supported by 35% growth in our in-house products, which contributed almost 2/3 or 64% of our revenue in the second half of 2021. Our gross margin hit almost 73% in the second half of 2021, and our adjusted operating profit increased by 25% half-on-half to GBP 33.6 million, an equivalent incremental contribution margin of over 40%.

If you'd now please turn to Slide 13. Here, you see the breakdown of our catalog revenue growth by region, category and customer type. All growth rates are on a constant exchange rate basis. As you can see, the long-term trends Alan discussed at the outset of our presentation have continued into 2021.

Starting with the product chart on the left-hand side, with the exception of Japan, all major regions grew at double-digit rates in calendar '21 with China, our fastest-growing region, posting growth of 34% and the U.S. delivering over 25%. These 2 regions together account for almost 60% of revenue. The EMEA and the rest of Asia also grew solidly at mid-teens rates with Japan at around 5%. As been well publicized, Japan suffered a more significant wave of COVID during the second half of 2021 than many regions. And that disruption, together with more long-standing structural issues with regards to life science funding, means it's likely to remain a lower growth territory for us over the longer term.

From a product perspective, in the middle chart, you can again see that all categories posted double-digit growth rates. Primary antibodies, our largest category, grew high teens, driven by our portfolio of in-house recombinant antibodies, which grew by over 40%. Our single- and multiplex products, which includes our growing ELISA portfolio, our FirePlex offering and now also BioVision cellular assays, grew over 35% and now contributes 1/5 of total sales. Other developing categories, including our detection and labeling kits, our growing portfolio of high-quality proteins and our edited cell lines portfolios, grew 27%, demonstrating great progress.

And finally, on the right-hand side, you can see the breakdown by customer type. As Alan mentioned earlier, biopharma continues to present a major long-term opportunity for us as we develop more of our own products, and this customer segment was the strongest area of the market for us in 2021 with growth of over 30%. Our academic and other research customers also saw good growth as educational and research organizations continued to increase activity levels through 2021.

Now please turn to Slide 14. So looking at our operating profit for the period, I thought it would be helpful to include this slide to walk you through the bridge for our reported profit in the period to our adjusted operating profit both before and after the changes we've made to the presentation of adjusted operating profit following the launch of the new share incentive scheme in the year that Alan mentioned.

Starting on the left-hand with the reported operating profit of GBP 7.1 million, we had just over GBP 33 million of exceptional costs in the year. These included: GBP 9 million related to the amortization of acquisition intangibles; GBP 13 million of acquisition and reorganization costs, the majority of which is related to BioVision; and GBP 7 million related to the final stages of the Oracle implementation, which we expect to complete in 2022. To get back to a like-for-like operating profit figure, we then add back the noncash costs related to the PGIP share scheme introduced during the year, which amounted to about GBP 7 million.

Taking this together results in a comparative -- in a comparable adjusted operating profit of GBP 47.5 million for 2021, equivalent to an adjusted operating margin of 15.1%. This compares to a market consensus of 14.1% and 13.8% in calendar year 2020. It's also worth remembering that in calendar 2020, we had a restatement of a GRNI uplift in the second half of the year. So the actual comparative adjusted operating profit was 13% for calendar 2020 to 15.1% in calendar 2021.

For those of you who are not aware, the PGIP scheme or Profitable Growth Incentive Plan, is an equity plan that was approved in July 2021 for around 150 of the company's leaders to align their incentivization to delivery of the group's 5-year growth plan.

And finally, in the last 2 columns, after adding back an additional GBP 12.9 of share-based payments in the year relating to prior share schemes, including the AbShare all employee scheme, which vested in November 2021, we arrived at an adjusted figure of GBP 60.4 million for 2021.

In addition to the PGIP plan mentioned earlier, the group has also now launched a successor plan to the AbShare plan. Once again, it aligns to our strategic goals as well as customer-focused metrics with all employees eligible. Both the PGIP and the new employee share plans run to the end of 2024 with the annual cost rising from around GBP 30 million next year to GBP 45 million in 2024. Again, remember, these are all noncash. We'll continue to provide data for the share-based payments for the historic and new schemes going forward to allow you to continue to make a like-for-like comparison post these changes.

If you now please turn to Slide 15. As Alan mentioned, one of our strategic priorities is to supplement our organic growth through acquisitions, and having announced the deal to acquire BioVision in 2021, we're pleased that we were able to complete it last October. To recap, BioVision is an innovator and global distributor of life science reagents with a focus on biochemical and cell-based assays. This was one of the focus areas of product development we laid out in 2019 and aligns with our existing areas of research focus, including oncology, immuno-oncology, neuroscience and epigenetics. We know their products well since they've been one of our largest suppliers for over a decade, and we're now moving through the integration process, which is well on track with our plans.

Regarding the financial headlines. As you recall, we paid $340 million in cash for the business or around GBP 250 million at current exchange rates, and we bought it on a cash-free debt-free basis. We financed the deal using a combination of our existing cash resources and a drawdown of GBP 120 million on our revolving credit facility. Total revenues of the business in 2021 were a little over $37 million, of which around 1/3 was sold through Abcam. As we previously disclosed, they generated approximately $5 million of COVID-related sales in 2020, which we didn't expect to recur. And you can see this had reduced to less than 3% of sales in 2021. As of the date of acquisition, the latest 12 months recurring revenues were around GBP 18 million or $25 million.

Our gross margin will benefit both from the uplift on our sales of their products and their own product sales, which are at a similar gross margin to our own in-house kits. Overall, we expect the transaction to be accretive to EPS in 2022. We've also updated our long-term revenue goal to adjust for the acquisition, and I'll touch more on this in a couple of slides.

If you'd now please turn to Slide 16. So turning to cash flow and capital investment. Supporting the delivery of our strategy is our strong balance sheet and cash flow generation. Following our equity placing on NASDAQ in October 2020, the cash generation of the business and acquisition of BioVision, we ended the period with a modest net debt position of GBP 24 million. The strong cash generation quality of the group continue to allow us to self-fund our internal capital investment needs to support our growth plans, and our capital allocation priorities remain unchanged. We're confident that the potential for the business to generate profitable growth and attractive returns through organic and inorganic investment remains significant.

The chart on the right shows the profile of our CapEx investment over the last few years, which has been fairly consistent and in line with the plans we announced back in 2019 at around GBP 40 million to GBP 45 million per annum. We'd anticipate this level being broadly maintained over the next year as we complete the final installation of the ERP program, launch our front-end website and complete the fit out of the new -- of the Waltham site for -- to scale up our kit manufacturing capability. Longer term, we continue to expect our CapEx to sales ratio to reduce from the elevated levels of recent years in the mid-teens to mid- to higher single-digit range.

Please turn to Slide 17. Before we open it up for questions, I wanted to cover the guidance that we set out in the statement earlier today. We previously committed to reintroducing guidance when we had more clarity on the path around COVID. And whilst we remain mindful of further potential COVID impacts as well as other macroeconomic uncertainties, it now feels an appropriate time to do so.

Our trading so far this year is in line with our expectations. And overall, we currently anticipate total revenue growth of approximately 20% in 2020. This is at constant currency basis and includes the impact of BioVision. On an organic basis, we expect mid-teens organic constant currency revenue growth.

As I mentioned earlier, we expect continued adjusted gross margin improvement from both the contribution of higher-margin, in-house products and the full year impact of the BioVision acquisition. And finally, on 2022 guidance, we currently expect total adjusted operating cost growth of mid-teens as we slow the rate of investment and leverage recent investments. For the avoidance of doubt, this growth rate is for total adjusted costs and includes adjusted depreciation and amortization costs, but excludes share-based payments. So the comparative figure is about -- for 2021 is about GBP 167 million.

Turning to our long-term goals. We've increased our revenue goal target by GBP 25 million to GBP 450 million to GBP 525 million on a constant currency basis. This is adjusted to incorporate BioVision and our current operating performance. Our adjusted operating margin and ROCE targets remain unchanged.

Finally, as I mentioned, we've been very pleased with the reception of our U.S. IPO, both in -- at the time of listing and since with a number of ADSs in issued doubling and liquidity increasing. With this in mind, the Board continues to review options to increase share liquidity. We -- to the extent we come up with those options, we'll consult with shareholders on any proposals.

And with that, Alan, I'd like to thank you for your attention. And operator, we'll open it up to questions.

(Operator Instructions) Your first question today is from the line of Puneet Souda from Leerink.

So first one, just on the in-house number, it was ahead of our expectations. And just wanted to see, what are you building in for the full year? What's your growth expectation for that overall in-house business? And how should we think about the total contribution from that by the year-end 2022? And also, how should we think about the op margin cadence given sort of the investments that you have ongoing right now and the fact that we're emerging from COVID still?

It's much easier for me to answer questions when I'm not on mute. Let me start, and then maybe Michael can talk a little bit about the financials. Overall, we have in antibodies still a situation where we think there's more ideas than we can execute every year. And that's in our portfolio where we've had the most experience at building our own products, and we're constantly looking for ways of increasing throughput and productivity in that portfolio. Last year, antibodies and all of our new products, we did about 2,500 new product introductions. And towards the end of the year, we really start to see some uplift in engineered cell lines and proteins.

So I guess to answer your question, we don't see the constraint so much the demand side. We think there's a lot of good tools that need to be introduced. The productivity and throughput that we can bring to market in new product development, we think, is the limiting factor, and we're kind of pushing as hard as we can there to keep driving more and more throughput of the right products. So it's a combination of using our data, analytic insights, predicting what the market is going to need, innovating where those gaps are and then driving as much throughput as possible.

So I think in general, we're moving as fast as we can. And the answer to your question is not so much kind of planned target, but how do we just keep driving more and more through it? Michael, do you want to give any kind of guidance on what our expectations are?

Yes. I mean we haven't -- I mean, Puneet, as Alan said, it's -- that's not the way we're really driving business, with a target number, but we don't see -- overall, I mean, if you look at the growth rate that we're guiding to, which is mid-teens on an organic basis and 20% with BioVision, that implies a not dissimilar overall growth rate in our own products over the next year.

Okay. Got it. Helpful. And then in terms of -- this is a broader question about the proteomics companies. You have established a number of agreements here with Nautilus, Alamar, others. Could you maybe outline your strategy there? And how are you structuring these economic -- what are the economics of these agreements? Should we assume the in-house gross margin on these antibodies when these products are eventually launched on the market by these companies? Or should we assume something lower?

And wondering if you can also talk about any contribution that you have from sort of the Olinks and the IsoPlexis and others. Those are pure-play proteomics companies out there that have -- that are incorporating your comments, and those companies are obviously seeing meaningful growth in the market.

Again, let me start...

Alan, if you want to take that...

We think -- yes, the investments in innovation and development of proteomic platform companies is great for science. And for the most part, they're using antibodies as their model molecules. Of course, not just any old antibodies, a lot of them need to be conjugated to the proper kind of signal molecule. And so it's a -- what we're trying to offer to the market is the right performance of the antibody, the right package of "ready to run on your platform" solution and being flexible about how we work commercially so that they can get up to speed quickly.

For products that we've already produced or created for the catalog, sometimes that's just some adjustments to buffers and addition of some, as I say, some conjugation chemistry. And really, there's no difference to our economics there and it's just finding another outlet for our content where more new innovative research can be done, and a lot of the relationships that we've established in the marketplace have been like that.

But what's becoming clear is the ambitions for these companies are big and they're limited by the range and availability of antibody content required to discover future applications, particularly in some of the kind of pan-proteomic approaches like Nautilus, where we're having to be a little more thoughtful about how do we open up a more innovative, higher throughput model to create content for those partners at a pace that allows them to grow and for science to expand into those applications.

That's exciting. But much of the last year, some of the agreements have had components where we're developing together a new product development approach. And again, the economics of that are attractive enough that I'm not concerned that there's anything material that would diminish the outlook for Abcam. But it's a different kind of work together.

Those are the minority. I think what we're finding is a lot of the content we've already made is useful, but there are a couple of companies that are working with this very innovative kind of new product development approach, and we look forward to doing more of that.

Got it. And then just last one, if I could squeeze in on -- Alan, I mean -- but obviously, valuations have come down meaningfully in the sector. Wondering, as you look around -- beyond BioVision from your vantage point, how does this sort of change your view on potential opportunities as you look out there?

Thank you. I think that's true on the public markets. I'm not sure it's so true from the sellers' expectations in the private side quite yet. Maybe that will play out that way over the next year. But we're still actively reviewing a lot of interesting tuck-ins and opportunities as ever. We're weighing up the advantages of those product portfolios and the teams that they bring versus the complexities of integrating small companies and why wouldn't we just do it ourselves. So it's -- I think we're looking forward to reviewing more companies as that valuation expectation moderates. But equally, we're going to be very selective.

The next question is from the line of Tejas Savant from Morgan Stanley.

So just a couple of quick ones on a couple of geographies here, which have been in focus of late. So Alan, starting with China. I mean, obviously, that's an important region for you. I think it was close to about 20% of your sales. Can you just walk us through sort of the impact of the zero-tolerance COVID policies. It's been a point of concern, especially over the weekend here, given the recent COVID surge there. And related to that, longer term, there's been a bit of a focus on local suppliers following all the recent geopolitical upheaval. Can you just remind us of your strategy there to navigate that nuance?

Yes. Thank you. China continues to be an important market for us, not just for this year but long term, and we believe the investments that are being made in that market, both in talent and funding research as well as the translation of that research into clinical applications is a long-term theme that's important for Abcam to participate in. So that's unchanged.

The short-term consequences of the COVID policies there have, to some extent, reminded us of where we were in spring 2020. But practically, our operations in Shanghai and Hangzhou continue pretty much as they were and unaffected so far by any material impact of the zero-tolerance COVID policy.

Given what's happened in Shenzhen and some of the early school closures in Shanghai, that could change rapidly. So what we're doing is making sure that we're prepared, that we have appropriate inventories and routes to market that allow us to work around any shutdowns should they come, just as we did in February, March, April 2020 when our Hangzhou facility was shut for a period as the original outbreak was taking place.

The demand side of the impact is also likely to be affected in China, depending on how things roll out. So far, it's not been a major issue. But again, we're watching carefully how that plays out. So I don't think there's a lot of material information report now, but watching and monitoring on a daily and weekly basis as you might expect.

Got it. That's helpful. And then just broadly on some of these supply chain disruptions, including perhaps an element of inflation here for not just you guys in terms of your supply chain, but also your customers' ability to scale up. Can you just walk us through your strategy there and your ability to pass through pricing increases? That's been a recurring theme for a lot of your tools peers here. I was just curious about -- is 2022 going to be a year about size pricing increases? And to what extent are you factoring that into your guide?

Michael, do you want to touch on that?

Yes. So I mean, if you look at particularly on the OEM side where we probably -- we have more potential exposure, most of our OEM products now are purchased through longer-term contracts, and we have the ability to actually pass on price increases, which we've been doing. So we're not too worried about things on the OEM product side. And on our own product side, I think we have the -- we've had enough flexibility to make sure that we're recapturing any inflation right now through price increases, I mean, obviously being also sensitive to not driving prices up too high. But we're fairly comfortable on the pricing side right now vis-à-vis costs.

Got it. That's helpful. And then, Michael, if I could follow up with the last one on the guide. I mean, obviously, the second half of '21 saw a marked improvement on margins relative to the first half. And I was just curious, to what extent was that sort of step-up related to mix and volume leverage and just usual seasonality versus some of your operating initiatives you're starting to bear fruit? And where I'm going with that is, is it fair to use the second half of '21 as a baseline off of which you should see some nice sequential improvement in the first half and then more so in the second half of this year?

Yes, I'd say that's fair, Tejas.

The next question is from the line of Stefan Hamill from Numis.

So just sort of following up on that new information that we've been given on biopharma revenues and the split there, with 33% growth in that area. Can you just give us a sense of how Expedeon's helping drive that? And is this a kind of growth rate that you can sustain?

Expedeon helps, but a lot of the core of what's made that kind of successful is still really high-quality antibodies. That approach that we've been building over the last 6 or 7 years now of making sure that we're innovating in the right target, we're making a recombinant version of the antibody that's highly validated, that's -- that engine plus the commercialization approach we have in biopharma is driving a lot of growth. It helps to have immunoassays that are related to it or conjugation chemistry that is related to it or kits that are related to it. But it's still -- that's the thing that we've been working at the longest to attract the biopharma portfolio, and that's the engine for growth there.

And then just sort of on the in-house versus third parties, it's obviously a fantastic in-house performance. Third-party, relatively subdued. Can you just give us a sense of any sort of active cannibalization between those two? Or could we sort of view those as sort of true like-for-like kind of growth rates between the two?

A lot of the third-party sales are related to the historic Abcam business model that we got started with. So their sweet spot is academic customers, relatively small volumes, typically involved in the kind of early stages of testing, which molecules are going to be appropriate tools for a line of research.

So when you look at 2021 as a calendar year, a lot of that activity was still subdued. So the impact of COVID was disproportionately high on the OEM portfolio. And as that lab activity and academic start to come back through October and November, we saw that growing pretty nicely again. And then Omicron started to have a pretty significant impact on academic buying again in December and January. So academic has gone through some ebbs and flows with COVID, which has had a bigger impact on OEM.

Okay. And then just one final one on royalties and licenses. There's healthy growth, and that growth has been sustained for quite a few years now. And you've done a flurry of sort of partnership deals in the last year. So could that actually come through this year in terms of further acceleration? Or should we view those partnership deals as having a fairly long life plan?

I think it's -- my response to this is unchanged. I think from a planning assumption, we've always felt like we'd be perfectly happy if that portfolio of products and revenues that were in CP&L kept up with overall top line growth and that acknowledging that, that was likely to be driven by more and more business from supply of in vitro diagnostics and antibodies and kits to and the royalties that can come out of that rather than through custom service projects fee for service. So that's unchanged.

And then we say, well, if we can -- if things that are out of our hands, activities that are out of our hands are more and more successful taking Abcam products into environments where we would be paid royalty, that's great upside, but we're not we're not counting on that.

So it's great to see it. I think it's absolutely in line with our strategy. But the timing of when those things happen is so out of our control that we're loath to get in the business of trying to predict higher than group revenue contribution to those.

The next question is from the line of Matt Larew from William Blair.

You walked through some of the capital investments that will continue in '22. But just curious within the OpEx line, if there's anything you could give us in terms of breakout by segment. I know hiring, I think, stepped down from about 350 new folks in '20 to 150 in '21. But what's kind of the employee headcount you plan to add in '22? And is it mostly on the R&D side versus sales and marketing?

Sure. So we ended the year at about 750 people. So the growth in headcount over the years was much lower than the year before. And we are anticipating...

Michael, that's 1,750.

What did I say?

1,750. You said 750. That's okay.

Sorry. So I mean we're looking again at a -- if you look at the operating cost that we laid out, that GBP 167 million, about a low teen-digit increase in those operating costs, and it's coming through comp and benefits, largely some slight increase in depreciation. But our investment is -- rate is slowing, and that's where we're seeing the increase in margins impact.

Okay. And then just on the guidance. Obviously, you gave the CER guidance. Just curious how you're viewing currency right now. I think '21 was another year with a meaningful impact from foreign currency. Can you just remind us what your policy there is and what we should expect for '22?

Yes. Last year, the foreign currency impact was about GBP 14 million headwind. And that was largely due to the weakness of the dollar against the pound. What we've seen so far year-to-date, and we don't really -- we don't predict currency changes. But the strengthening of the dollar has been offset largely by the weakening of the euro against the pound, and I think somewhat as a result of what's going on in the Ukraine. So right now, we're at about awash from a -- for a currency change impact.

I don't know where that will go, but we're hoping that a little strengthening of the dollar will give us some tailwind. But right now, that's been largely canceled out by the change in the rates of the euro.

Okay. And then just the last one, I think on the last update call, you mentioned a 3% headwind from some delisted products, and obviously, that was outsized -- that's something you mentioned. But anything that we should be factoring in for '22? And was there anything of note to call out in terms of a back half '21 impact?

No. I mean not -- it's not -- we didn't have any significant delistings last year. We had a continuation through -- we've always got some culling of portfolio. And to a certain extent, if we're culling things, we try to replace them with other stuff. And we saw the biggest impact in 2020 and early '21 from the large delisting we had in 2020. But it's probably now -- that portfolio and the delisting of that portfolio would have probably had a 3 -- about a GBP 3 million effect on this year.

But again, we've just -- we've moved on from there. We've replaced what we can. And so it just shows you that we're actually growing at an even higher rate, given the impact of the continued culling of the portfolio of third-party products.

I mean also remember, because the third-party product portfolio continues to be a smaller and smaller amount of our sales, it has a smaller impact when we do cull those products. And we've also done the largest and most significant culling over the last few years and now have a portfolio of what we think is largely very good third-party products. In the second half of last year, we were -- it was -- 64% of our revenues in the second half were our own products. So the impact is continuing to get smaller.

The next question is from the line of Charles Weston from RBC.

I have 3 questions, please. First of all, on your mid-teens organic revenue growth, is that reflective of the first couple of months of trading? Or are you assuming some acceleration or deceleration? And on that subject, how much of that sort of mid-teens organic growth relates to COVID-impacted comps and a sort of a COVID recovery versus more of an underlying growth rate?

So Charles, on the first question, it is what we had estimated before the beginning of the year, and we are trading consistently with where we thought we'd be right now. So we're not expecting some significant incremental surge in trading to make -- which hit those targets. And no, we think it's -- we don't think -- we think we've actually caught most of the recovery from COVID. In fact, as Alan mentioned, hopefully, there won't be -- the level of impact from what's going on in China or anywhere else will not be significant, but we're not expecting a catch-up from COVID to make those numbers.

And then on Page 13, you split out some immunoassay and nonprimary antibody revenues. How much bigger is the combined market of the other products, not the immunoassays? And could you expect a similar market share in a similar time frame? You're in your seventh or eighth year of immunoassays. Or could that go quicker given all your digital investments?

Alan, do you want to touch on that?

Yes. I mean the immunoassay market is much smaller than the antibody market. But we're -- we might have been 8% to 10% of that business, and we just think there's a lot more headroom for us to grow there. So I would agree with you, there's more market share to go after. And then this comes back a little bit to what Puneet was saying, as there's so much innovation in how immunoassays is being done through these platforms that are being -- coming to market, that adds additional growth, but could expand the size of the TAM there. So we're interested in that dynamic as well.

On cell engineering, it's so early. To some extent, the first 3,000 products we have are nice, but we're trying to get to a pace where we can make thousands more each year, and we're in the early stages of developing that kind of capability. So it's just -- that's one of those where the market size will grow as we grow out the product portfolio of available science worldwide.

Proteins, we're in early days with our cytokines and bioactive proteins but got really good uptake. That's going to take -- I think it's going to take us a lot longer to build the kind of share position there, but we're right on track with where we thought we'd be.

So the reality is there's growth everywhere. There's still a lot more to go for in antibodies as there's a lot more share to go for in immunoassays and potentially growth in the addressable markets. And then there's growth in addressable markets, both in edited cell lines and proteins. So we feel like we're in good markets.

Okay. And my last question relates to your comment about reviewing options to increase share liquidity and consultation with shareholders. Given you said you're going to consult, I'm sure you're not going to share too much with me, but it should appear to be signaling something, and I'm not clever enough, perhaps, to understand what it is signaling. But does it signal that you're likely or you're considering shifting your primary listing?

Michael, I think you're on mute.

This is helpful to turn the mic on. Sorry, Charles, I mean, look, it's certainly one of the things we're considering. If you -- as you well know, our liquidity, if we have 228-plus million shares outstanding and very low trading volumes -- and it is interesting that it's in the little over a year since we've listed in the U.S., we've gone from 5% to 10% of our shares here, and it is 25% of our liquidity. So we're looking at ways to take advantage of that. And I guess all options are open to consideration, and that's what we're looking at this year.

The next question is from the line of Michael Ryskin from Bank of America.

And congrats on the update on the -- guide update. I want to start with a question on BioVision. You indicated really good progress since you closed the acquisition. I'm just wondering, approaching 5, 6 months after the deal closed, any insights or any learnings you can take in terms of integrating the operations from an R&D perspective? Just sort of how is that progressing as you roll the assay business in with your existing offerings? Sort of any learnings you can take from that as far as future opportunities?

Yes. Great. Thanks, Michael. On the R&D integration, I think one of the things we always believed about BioVision and any company that we acquire is that our data can help figure out where there are still opportunities to innovate with the team. And I think that's been one of the most interesting things as we've gotten together just looking at their kind of prioritization list and ours, how we can help provide more focus and attention and investment in some hot areas where they may not have seen opportunity or we uniquely saw it. So a lot of that work is going on now.

I actually think the bigger question that BioVision raises for us that we're trying to deal with in terms of investments and focus is we now have a pretty substantial kits portfolio immunnoassays, cytoactivity assays, activity assays and conjugation kits where the capabilities to manufacture components at the right time, store those in the right places and assemble those in the kits becomes a capability that we need to have at scale and through high throughput in ways that Abcam hadn't historically and none of the acquired companies had. So one of the things we're looking at this year is just how we scale that up and make that a bigger and bigger part of our company, and certainly BioVision's team and that portfolio has given us additional scale and capabilities to think about that opportunity.

Okay. Great. And then a quick follow-up on BioVision, and then I have one more. On the long-term guide update, I think you raised by GBP 25 million, and you indicated it was updated to account for BioVision but also the current performance. Could you give us some clarity on that? I mean we can do a math between GBP 17.8 million trailing 12 months and GBP 25 million in 3 years. But is the rest of the view roughly unchanged? Do you feel a little bit better or a little bit worse? Just sort of what's the other math there?

Well, I think it's just the confidence in the level of growth that we saw last year and that growth going forward both in our antibody business and our kits business, our proprietary products, and that's reflected in those assumptions.

Okay. All right. One last quick one for me. Among the customer segments, if you will get sort of the academic customers and the research institute customers, strong performance. Trailing 12 months, obviously, it's a market that doesn't grow as fast typically as biopharma. And those customers could be a little bit more susceptible to COVID. So anything you can call out there both in the U.S. with updates on NIH funding recently and your just sort of -- the status of those customers? Are they really back to normal? Is there more upside from those numbers?

Yes. It's a great question. I think it's -- the funding environment is strong worldwide. The impact of COVID continues to be one that is an issue, whether that was the impact on labs closing early and heading out for the winter break or a little bit slow to come back in January, where we had some soft December and January numbers in the academics institutions, not all of them, but some, or what we're seeing in China right now with local regional shutdowns in some locations. So I think there's those factors.

Our own surveys have suggested that the self-reported numbers for academics would say that 85% of the labs are back to normal by January. So whatever that means. So we'd like to declare victory, move on and say, "We're done." Just not quite through all of it yet. So part of our updates on the numbers that you asked about earlier is we're very bullish about trying to drive to the top end of our range, but there's still quite a lot of uncertainty in the world, and we want to reflect that.

And the last question today is from the line of Miles Dixon from Peel Hunt.

Just quickly, returning to 2 themes that I heard you talk about at the Capital Markets Day in November '19. Firstly, it was on the data team that was trying to get in front of demand for antibodies. And secondly, on the success of your relationship with The Michael J. Fox Foundation, so the funding bodies essentially. How successful has that been in the last couple of years? And can we now add that to a differentiator, if you like, for Abcam and why you continue to guide for growing ahead of the market?

Thank you, Miles. On the data, I think data has always been important to Abcam right from the beginning. We're just getting better and better at using -- at structuring data, cleaning it up, creating the digital architecture to make it more accessible and usable and then building models to help predict where science is going and who's relevant to those innovations. So I think we can declare quite a lot of progress there, but we still have really high ambitions for what we can do and some of the investments we're making this year on customer journeys and our digital experience, customer experience. We're excited about what we can do over the next few years on that. We're using -- applying that data.

With the foundations that we just keep finding that bringing together our insights about where the gaps in the market are, the funding bodies' priorities, researchers' priorities and working together with clinical applications. That is a group thinking kind of about what -- where the innovation needs to happen, is taking years off of the transition from first discovery to clinical or patient impact.

And a big part of where our brand is going and where our capability is going is to do more and more of that. So we're excited about what we've done with Michael J. Fox in that area. There are many more like that, that we want to continue to pursue and are pursuing.

And I thank everyone for their extended attention today. It's been a real pleasure to talk about Abcam's performance. We're very proud of what we've been able to achieve. We're excited about the year ahead, and thanks, everyone. Talk again soon.

Thank you all. Bye.

Thank you. That does conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.